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Fed loans and account guarantees helped regional banks' "deposit flows" remain stable, Treasury official says

March 18, 2023
minute read

According to Wally Adeyemo, deputy secretary of the Treasury, the Federal Reserve's record-breaking amount of emergency loans to banks this week were crucial in containing withdrawals from small and mid-sized U.S. institutions.

Although they helped restrict the catastrophe, the effects of the quick moves taken by federal regulators last weekend to stabilize the U.S. banking system were still felt throughout the economy over a week later.

The federal assistance and the $30 billion that 11 banks placed into First Republic Bank have not yet been completely priced into the markets.

to contribute to boosting the system's confidence, he added.

In Trade Algo’s Interview, Adeyemo stated, "Markets will take time to catch up with the steps that have been taken by us and by these banks. And what we've done now is given these institutions time to think about how they arrange their operations moving ahead."

In response to the collapse of Silicon Valley Bank in California and Signature Bank in New York, which occurred last Friday and Sunday, respectively, authorities unveiled some emergency steps to stabilize the country's financial sector.

Customers' deposits at the two bankrupt banks were guaranteed, a new program called the Bank Term Funding Program was established to provide banks with substantial short-term loans, and the "discount window," the Fed's typical overnight bank lending facility, was given more latitude.

According to Adeyemo, the acts had a major impact on the fortunes of several institutions. It included banks that had pledged collateral in advance anticipating the need for emergency loans since they had foreseen probable mass withdrawals.

While some banks had anticipated the need for greater liquidity going into the weekend, Adeyemo discovered that throughout the week, they had to utilize less and less of it. And now that the amount of deposits to such institutions has stabilized.

The number of money banks borrowed through the Fed's discount window in the previous week through Wednesday, however, reached a new record at $153 billion, even though the trends were positive.

During the height of the financial crisis in 2008, $111 billion was the previous high for discount window loans.

It will take another two years before the names of the banks that borrowed are revealed. The total though indicates that the financial industry is still far from solid.

Along with another query brought up by the Fed's activities, there are continued concerns regarding bank stability. if future failed banks' uninsured deposits will be protected in the same way as they were at SVB and Signature.

"Are all uninsured depositors currently secured in the banking system of the United States?

Adeyemo was questioned by a reporter.

This is now a goal of the Biden administration but is not a reality, was the response.

The president has made it plain that protecting depositors is our priority to ensure that they have the funds necessary to maintain their enterprises and provide for their families, according to Adeyemo.

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